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• Understanding the business environment enables executives to comprehend both the present and future direction and growth of their firms.
• The business environment consists of dimensions in the broader society influencing industries and firms.
• A business's success depends on its capacity to favorably influence the business environment and generate desired profits.

What is Business Environment?

• It is the aggregate of conditions, events, and influences affecting businesses (Keith Davis).
• It is all things external to firms and industries affecting their organization and operation (Bayord O. Wheeler).
• It encompasses the climate or conditions (economic, social, political, institutional) in which business operates (Arthur M. Weimer).
• It includes external factors that can lead to opportunities or threats, such as socio-economic, technological, supplier, competitor, and governmental elements (Glueck and Jauch).

Important Factors in Business

• The business condition miles ahead is an important factor in the survival of the business.
• General environment focuses on how the industry will fare in the future, affecting present and future operations.
• Industry environment is the analysis of a firm's condition and profitability within its specific industry.
• Industry environment analysis assesses a firm’s capability to compete based on products, services, vision, and mission.
• Competitor environment focuses on predicting dynamics in competition, including operational actions, responses, and intentions.
• Observing competitors offers insights into effective strategies.
• The business environment includes both internal and external factors, with both having an impact.

Environmental Analysis

• It identifies relevant internal and external factors with direct or indirect impacts on business efficiency.
• Environmental analysis helps organizations align strategies.
• It evaluates threats and opportunities for translation into decision-making.
• Environmental scanning is a strategic tool.

Steps in Environmental Analysis

• Environmental scanning is the careful analysis of complete and unconnected information.
• Scanning is important in a highly volatile business environment.
• Scanning involves monitoring the relevant environment to identify opportunities and threats.
• Scanning gathers, analyzes, and forecasts the impact of predictable environmental changes to take strategic decisions.
• It aids managers in deciding the future path of the organization.
• Monitoring involves carefully observing environmental changes and their effects based on scanning information.
• Trends and events are opportunities that must be explored and corporate adjustments determined.
• Monitoring technological innovation is crucial due to rapid business changes.
• Meaning must be detected in event and trends.
• Forecasting is based on scanning and monitoring.
• Forecasting involves developing projections of potential events and how quickly strategies must be developed for competitiveness.
• Forecasting may deal with changes, workforce training, and new market strategies.
• Assessing pinpoints the timing and significance of environmental changes strategically.
• The objective of assessing is to understand the general environment to adjust the changes in the environment.
• Without assessment, data remains useless, and competitive relevance isn't taken advantage of.

Segments of the General Environment

• Segmentation is the division into separate parts or sections.
• Market segmentation involves dividing a company's target market into groups of potential customers based on similar needs and behaviors.
• Segmentation: dividing a broad consumer or business market into subgroups based on shared characteristics.
• Market segmentation creates subsets based on demographics, needs, priorities and other behavioral criteria.
• It aggregates prospective buyers into groups with common needs who respond similarly to marketing actions.
• Athletic footwear companies may segment their audience based on sport (e.g., basketball, running).
• Different market segments respond to different advertisements.

Segments That Affect Firm Operations

Demographic Segment

• The Demographic segment is concerned with a population's size, age structure, geographic distribution, and ethnic groups analysis.
• Demographic info should be analyzed globally due to potential cross-country effects.
• It aids a company to understand consumer behaviour.

Categories within the Demographic Segment

• Population size (population index).
• Age structure factors growth rate and the middle age group.
• Improved medical care increases life span in other countries.
• Corporations development occurs with urban centers growth..
• Increase in technology drives growth of communication linkages.
• Ethnic groups are moving to more populated centers.

Economic Segment

• It relates to a country's economic stability.
• The economic segment focuses on economic conditions that organizations operate within.
• Includes interest rates, inflation, GDP, unemployment, disposable income, and economic growth or decline.

Political and Legal Segment

• A segment where organizations and interest groups vie for attention and resources to oversee interactions through laws.
• The segment focuses on how interest groups influence government representatives.
• Political and Legal is concerned with interpreting law through legal proceedings.

Advancement of Technology Segment

• Firms developing new technology and products gain an advantage in market share.
• The role of executive is to scan and monitor the development and identify the possible substitute and products.
• Technology offers information and transactions through the information highway.
• Technology changes communication and delivers competitive advantage.

World of Business Segments

• Globalization creates both opportunities and challenges in business.
• A bordless flow of products as trade and commerce.
• National industrial development and generating investments for product production pose challenges for the government and firms.
• National leadership and rural sectors need effective governance and political will for new industries.